Ventana Research Analyst Perspectives

Last week I attended the HRO Today Forum an annual event that brings HR and recruiting professionals together with business executives to discuss and define the future of HR services and technology. Also last week Workday announced an expanded set of payroll applications. In addition to its core human capital management products, Workday also offers financial management and payroll. During lunchtime of the second day of the forum, HRO Today Magazine announced the winners of the 2011 Tektonic Awards for innovation in HR software and technology. Workday won the “overall” category, for good reason based my recent briefings with this global provider of innovative SaaS-based human capital management and business management software.

Most HR vendors have focused on cloud-based, end-to-end integrated talent management suites that include recruiting, onboarding, performance, succession, learning, planning and analytics, and employee and manager self-service. But Workday and some others are expanding their products and services to process payroll directly for organizations as well as deliver payroll management (providing third-party payroll integrations between the core HRMS and other payroll providers) and business process outsourcing (managing multiple financial, payroll and benefits-related processes on behalf of customers).

Human capital management suppliers are rolling out multiple, scalable products and services to convince customers that working with fewer companies can drive workforce management efficiencies, increase return on investment and lower overall total cost of ownership in talent management. Toward this end they offer financial and payroll management products and services that go beyond straight integrations with third-party payroll providers and the basic core HRMS offerings of payroll and benefits, time and attendance and scheduling. This includes direct payroll processing on behalf of the organization. And while many enterprises are still comfortable with traditional HRMS and talent management on-premises software, significant costs and resources are necessary for businesses to install, upgrade and maintain those applications. This burden has influenced HR departments in recent years to shift their focus and investment to applications that can be rented and readily deployed across organizations.

Labor is most companies’ biggest capital expenditure, and the increased complexity of global payroll and benefits administration for a large, worldwide contingent and virtual workforce can be challenging due, for example, to the variety of in-country tax codes alone. The U.S. in particular presents a diverse range of workplace cultures and regulatory environments. As a result, many customers are looking for more help from their HCM suppliers. Just as HR strives to become an integral business partner in the enterprise, HR providers striving to become strategic business partners for the next generation of human capital management. Another vendor I recently reviewed, ADP who has been the major player in payroll outsourcing has new HCM software products while enhancing and integrating its existing products with those acquired like Workscape. Conversely, Workday is expanding to become an all-encompassing HCM global business software and services organization.

Increasingly, providing comprehensive and integrated payroll products and services is critical to HR management. During a recent briefing, Workday executives walked me through the entire expanded set of payroll offerings they claim will simplify the historically burdensome task of paying workers around the world. Today, Workday Payroll is structured to help companies manage their payroll for all U.S. workers, and it is slated to be offered in Canada with a release later in 2011. (The company currently supports Canada with Cloud Connect for third-party payroll services, which includes packaged integration and Workday’s payroll connector.) Workday Payroll provides employee self-service access to online pay slips, year-end tax statements (U.S. W-2 and Canadian T4), tax elections and payment elections, all delivered via software as a service (SaaS). The software also automates state and federal tax updates, which are critical to managing payroll complexity. For those responsible for keeping up with the tax codes, this decreases the need for regular upgrades and patches that on-premises payroll systems demand.

Workday also plans to release a bidirectional payroll connector adjunct to its Workday Integration Cloud. That enables customers and partners to integrate with the Workday Cloud without the need for on-premises middleware. The bidirectional payroll connector service will allow companies to import data from a third-party payroll provider back into an HCM solution, thus gaining a broader view of payroll data across the global workforce. End users can garner more insights into processes such as cash forecasting, comparing actuals to budget, optimizing pay ranges, managing allowance and overtime policies, and the true costs of workforces around the world.

In addition to an expanded Workday Payroll for Canada release, Workday also recently announced payroll partnerships with OneSource VHR, Patersons and SafeGuard World International . OneSource VHR provides payroll “co-sourcing” services, including payroll settlement, tax administration and garnishments administration. (Workday says it coined the term “co-sourcing,” which just means outsourcing partnership as far as I can tell.) The idea is to give customers visibility into and control of their data along with the flexibility to “insource” or bring their payroll in-house in the future. Companies that prefer to partner with payroll vendors in their local markets can then have packaged integration with SafeGuard World International or Patersons to provide support for payroll processing in almost 100 countries.

I expect these expanded payroll solutions will help Workday grow its payroll market share, which the company claims to be more than half of its core HCM customers. However, customers and prospects have to wait until November for Workday 15 (Workday 13 was released in April). HCM SaaS vendors often have two or three major releases a year in addition to updated features every month or two.) Workday’s multitenant architecture allows its customers to receive new updates regularly at no additional cost as part of their subscription fees, as opposed to waiting months or even years for on-premises software upgrades. The speed at which multitenant, cloud-based software solutions are updated is a key marketing advantage over on-premises competitors. And the fact that many of the on-premises software vendors that my colleague has assessed like Oracle and SAP, are beginning to get cloud-based software to market is telling. Our own research confirms a shift of interest from on-premises to SaaS deployments.

Analyst Perspective Policy

Ventana Research’s Analyst Perspectives are fact-based analysis and guidance on business, industry and technology vendor trends. Each Analyst Perspective presents the view of the analyst who is an established subject matter expert on new developments, business and technology trends, findings from our research, or best practice insights.

Each is prepared and reviewed in accordance with Ventana Research’s strict standards for accuracy and objectivity and reviewed to ensure it delivers reliable and actionable insights. It is reviewed and edited by research management and is approved by the Chief Research Officer; no individual or organization outside of Ventana Research reviews any Analyst Perspective before it is published. If you have any issue with an Analyst Perspective, please email them to ChiefResearchOfficer@ventanaresearch.com